Personal Income Tax

Pay Less Tax And Get More Money Into Your Super - Tip

This is a sweeping generalisation but it will apply to most people - you don't like paying tax (more than you absolutely have to, at least), but you do like boosting your super because you know you will get the benefit from that money in the future. So, here is a way that you can pay less tax every month, and increase the amount of money that is paid into your super.

Before beginning, this only applies to people who are in a position to make an extra contribution to their super. If you need all your monthly salary for living expenses, then your options for availing yourself of this method will be limited.

Essentially, it involves allocating part of your salary as a salary sacrifice. This gets put directly into your super fund and is taxed at a rate of 15 percent, which is much lower than the current income tax rate and Medicare levy.

Of course, you will have less take-home pay every month, but your overall financial position will improve.


How Much Can You Gain?

The amount of money that you can add to your super using this method depends on your personal circumstances - how much money you earn every month, and how much of that money you can do without. Let's look at an example to see how this could play out for you.

A person who earns $90,000 a year would have a take-home pay of $66,953 after standard income tax and Medicare levies are paid. But what would happen if this person allocated $10,000 as a salary sacrifice for their super? Firstly, their take-home pay would be $60,853. That is $6,100 per year less than normal.

Now it gets interesting though, because the $10,000 salary sacrifice goes into the super and is taxed at 15 percent, leaving $8,500 in the super. So while this person would lose $6,100 in take-home pay each year, he or she would gain $8,500 in super contributions. The overall gain, therefore, is $2,400 a year.

You will have to work out if you can afford to have a lower take-home pay when deciding if this could work for you, but there is one scenario in which it should always be used – you should always try to avoid making after tax additional contributions to your super. That is the costliest way of making contributions because of the tax rates involved.

The more money that you can afford to do without by way of a salary sacrifice, the more you will be able to get the best of both worlds:

  • You will pay less tax in the long term
  • And you will have more money in your super when you retire

Finally, remember that this can be applied to investments as well as your salary. If you don't need access to your investments, you can put them in your super. Any earnings you make are then taxed at the lower rate of 15 percent, leaving you more for when you retire.




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